Digitise India: Stakeholders analyse the impact of 3 years of DAS
NEW DELHI: Digital addressable system (DAS) has brought about several positive changes in the television broadcasting sector. There are, however, some grey areas that have to be sorted out. Even three years after the implementation of DAS Phase I in metro cities except Chennai, the average revenue per user (ARPU) is still not showing an upward trend.
The lack of desired ARPU increase has been attributed to the dispute between multi-system operators (MSOs) and local cable operators (LCOs) over revenue share. This tussle has also held up the consumer billing process. With the cable TV piece yet to fully settle in many areas, the MSOs have not been able to focus on broadband, value-added services (VAS), HD channels and package tiering. Over time, these issues will also be resolved.
This, in short, was the gist of the panel discussion during the just concluded Digitise India conference in Delhi organised by TelevisionPost.com on 2 February. The panel discussion ‘Impact of three years of digitisation’ saw leading executives debate on the changes in the sector and the way forward. The session was moderated by ICRA Senior Group Vice President Subrata Ray.
Kicking off the debate, Ray said that around Rs 20,000 crore (Rs 200 billion) has been invested to develop the infrastructure and concern has been on the stressed balance sheet of the MSOs. More capital will be needed for further digitisation. So, what is the picture on ROI (return on investment) and profitability?
Hathway Cable & Datacom MD and CEO Jagdish Kumar said that the cable TV industry needs huge capital inflows into infrastructure to provide better service to the customers.
“We are positive about the liberalisation of the FDI (foreign direct investment) regime in the distribution sector,” Kumar said.
He also said that foreign investors are concerned about the viability of the TV distribution business due to various structural issues. After three phases of digitisation, the balance sheets of the MSOs are already over-stretched.
Though there is much more to do, there have already been some benefits of DAS. Siti Cable content and carriage head Bibhash Jha said that the MSOs have been able to collect a lot more money from the local cable operators (LCOs) thanks to digitisation, which has brought transparency in subscriber base.
“In analogue times, we were collecting not even one-tenth of what we are collecting in DAS. Analogue was completely driven by carriage,” Jha said.
Stating that MSOs are making consistent efforts to increase the ARPU, he said that MSOs are collecting Rs 90–100 from LCOs in Phase I and Rs 60–70 in Phase II. For Phase III, MSOs will start with lower value of Rs 30–40 only to scale it up in future.
Disney Media Networks VP and head of revenue Nikhil Gandhi said that ARPU has not grown despite digitisation. This, he said, was a worrying sign for broadcasters who are investing in creating superlative content to stay relevant to the viewers.
“Over the last decade, broadcasters have invested in content. For broadcasters, consumer is right at the heart of the business. Investing in content is a continuous process. Ultimately, the investments have to be justified with the ROI (return on investment),” Gandhi said.
For profitability of the cable TV sector, ARPU needs to go up. MSOs have collaborated to increase average revenue per user (ARPU) by entering into a truce of not eating into each other’s territory, Jha said.
“In the long term, ARPU will play significant role in profitability. Apart from cable TV, the ARPU from broadband will also be significant,” Jha added.
Fastway Transmission CEO Peeush Mahajan said that ARPU has to go up at the subscriber level. He also highlighted the importance of taking the LCOs into confidence to achieve this. An increase in cable TV ARPU will help MSOs to invest in VAS and broadband, he said.
Ortel Communications president and CEO Bibhu Prasad Rath struck a discordant note with his fellow panellists on ARPU. Rath said that DAS was never intended to increase ARPU; rather, the objective was to give choice to the consumer.
Rath said that the ARPU could go down following digitisation especially if true addressability kicks in. With addressability, there will be more choice to the consumers to take only desirable channels and shun the ones that they do not want.
“Consumers don’t need all the channels. There will be more pressure on ARPU when there is complete addressability. Some will opt for high-value packages while some will opt for low-value packages. The average may not go up. Cable TV business is not ARPU driven; it is market driven,” he maintained.
Rath also said that cable TV will be successful when MSOs offer multiple services on top of video. That will require several times as much investment as what the MSOs have invested in DAS.
The set-top box (STB) will be irrelevant in several years from now. He cited the example of the US market where Comcast has more broadband customers than video. In his own market of Bhubaneswar, Ortel’s broadband ARPU is more than its cable TV ARPU.
On the point made by Ray whether there are too many channels in the market than required, Gandhi said that more channels are a requirement. The consumers have to ultimately make a choice.
Concurring with Gandhi, India TV CEO Paritosh Joshi pointed out that Croatia, a country of one million people, has three distribution platforms and 85 channels. Joshi feels that there is plenty of room in India to launch more channels. The problem, he said, is not of plenty rather too many channels are the same.
“Differentiated offering is the key going forward. In the US, there are local news stations. Cable TV digitisation enables hyper localisation. The theory of too many channels is a misnomer,” Joshi noted.
In digital world, the very definition of linear channels will change. He also said that price is not an issue if the product is right.
Flagging the issue of ‘must provide’, Joshi said that the same should be dispensed with. “In a free market, it should open up for broadcasters to provide their signals. If distributors want the channels, they can approach the broadcasters and start the commercial negotiation,” he said.
Ortel’s Rath challenged the broadcasters to put their content on a la carte if they are so confident about their content. “In Phase III, I asked broadcasters to put their channels on RIO (reference interconnect offer). I will run the campaign to promote the offering. However, broadcasters don’t come forward to put their product for test,” he contended.
Differing with Rath, Hathway’s Kumar said that ARPUs definitely need to go up in cable as every other commodity price has increased except cable. He said that one way to achieve the same is to get ARPUs up and the second is to get a reasonable settlement with broadcasters.
“APRU will go up through transparency and delivery through choice,” he averred.
Kumar also argued that India being a heterogeneous country needs more channels. Diversity of content is essential. The broadening of the pipe will allow MSOs to push more content.
On the issue of competition with DTH, Jha said that cable leads in DAS. The service provided by LCOs has played a big part in customer retention. Disney’s Gandhi said that the credit facility provided by LCOs is a big advantage.
Fastway’s Mahajan pointed out that three years back DTH had 1.2 million customers in Punjab while Fastway, which is the dominant player in the market, also had an estimated base of 1.2 million. Three years later, DTH has added only 300,000 customers while cable has added 1.2 million customers.
The government has gained from digitisation. Kumar stated that the data provided by the Telecom Regulatory Authority of India (TRAI) has revealed that entertainment tax collection from cable TV in Delhi has increased to Rs 5 crore (Rs 50 million) from Rs 2 million.
He also said that the proposed goods and services tax (GST) is good for the industry and will help in saving revenue.
Mahajan said that there would be only 10–12 MSOs in four years from now at the national level due to consolidation. He also said that MSOs would be able to unlock true value only when they focus on broadband.
On the emergence of over-the-top (OTT) platforms, Kumar said that these services don’t pose any challenge to traditional platforms. In the US, cable TV prices are obnoxiously high, which is compelling people to cut the cord and opt for services like Netflix. He also said that the launch of services like Netflix will lead to data explosion.
Jha said that the 4G players will not have much impact on MSOs as the latter are capable of providing 70–75 Mbps speed while 4G can provide only 50 Mbps.
Kumar said that the spectrum allocated to telcos cannot deliver linear TV. In a hypothetical situation, if all consumers were to watch World Cup on 4G network, the 4G spectrum would collapse.